The ways blockchain technology will change the financial services, problems of the current banking system and possible solutions, a number of features introduced by blockchain such as digital property and the concept of ICO
The technology behind cryptocurrencies, blockchain, is all about changes. Needless to say that these changes are taking place right in front of our eyes, especially in the financial industry.
Blockchain technology did not have a quick start. Invented in 2008, blockchains as a technology sparked technical people’s interest only five or six years later. Since then, many companies have been working on various applications of the technology, and new DLT-projects are now emerging every day.
Sharing numerous features with databases, blockchains are primarily considered a system of record. One of the blockchain’s key differences over databases is that they record the history of itself. It proves to be a major advantage in terms of security of stored data. This is why financial companies have put much effort into developing blockchain to fit their needs and requirements. These derive from the limitations and drawbacks of traditional means of financial communication and money transfers.
Personal computers, the Internet, and smartphones have profoundly changed the way we live. However, financial institutions were never too quick to adopt new technologies. Many banks are still using SWIFT for cross-border transactions.
Thanks to this 45 year old system you can send money to your relative in another country in just three to five business days. This is because many banks cannot send transactions directly to other banks. They do not have shared databases. They will have to transfer that money through several other interconnected banks, which will serve as intermediaries and demand a cut of that transaction.
If you are trying to send money through a bank that does have a branch in another country, it will still may be quite costly and slow. Traditional databases that bank branches utilize need to be opened and closed from both ends. While this ensures high security, it sometimes can take too much time and effort to make simple transactions.
Distributed-ledger technologies have a solution for the above-mentioned and many other issues. They are able to provide effortless, cheap and direct money transfers without any regard for state borders. Ripple, for example, uses a permissioned blockchain to enable global transactions of any size with no chargebacks. This system is primarily used by banks and has all the chances to replace the outdated SWIFT.
Along with many new features, blockchains introduced digital property. Before DLTs, everything digital could be copied: from music to money. There was no effective way to own something unique in virtual space. Blockchains made it possible. Each bitcoin, for example, has its own history and cannot be replicated.
This gave developers an idea of colored coins. Colored coins can carry unique unreplicable information about their ownership. They can be used like stocks in a company. This concept give way for a new crowdfunding tool: ICOs. Usually when a blockchain-based (though some non-blockchain companies do ICOs as a marketing move) project needs to gather funds for development, they can conduct an ICO, or Initial Coin Offering. They will issue their own coins or tokens and sell them to investors. Collected money goes to the project development, and as it grows, the coins/tokens appreciate, which brings profit to their holders, investors. Though there is now a lot of fraud and lies surrounding ICOs, starting own company has never been easier, and if you do something that is worthwhile for blockchain industry, you should consider getting help from investors through ICOs.
Finance was the first area for blockchain application due to high security and reliability. In the world of money, where even the slightest mistake can cost highly, it is of most importance that everything can be traced back. This is now possible thanks to the new system of record, blockchain technology. It offers many applications for accounting, audit, ownership and property and can bring finance to a new level of automation and advancement.